Sponge iron manufacturing units and induction furnaces have come to a halt in Karnataka, parts of Tamil Nadu and Andhra Pradesh, following severe shortage of iron ore and the high price at e-auctions.

“Manufacturers earlier bought ore at Rs 1,200-1,500 per tonne, including all charges. Ever since, the e-auctions began, ore was sold at Rs 2,700 a tonne, which the small and medium companies could not afford,” said a sponge iron maker.

Barring three to four large units, which could afford to buy ore at e-auctions, the remaining 50-odd units have closed, leading to job loss of approximately 20,000. In Bellary district alone, there are about 50 units and the rest are spread in Koppal district.

The Supreme Court had ordered closure of mining in Karnataka with effect from July 29, 2011, after large-scale illegal mining was reported in the state.

This had had a cascading effect on the entire value chain. It not only caused closure of sponge iron units, but also resulted in shortage of raw material for many induction furnaces and electric arc furnaces that manufacture torsteel (bars used in construction) and billets. There are a lot of such units in Tamil Nadu and Andhra Pradesh, dependent on sponge iron from units in Karnataka, Basant Poddar, vice-chairman, Federation of Indian Mineral Industries, south said.

“Typically, sponge iron units consume hard iron ore lumps or pellets as key raw material. Since mining was banned here, these units have no access to lumps. Whatever lumps were sold in the e-auctions were consumed by large steel mills and these units could not pay such a heavy price to buy them. Also, they cannot use soft lumps or iron ore fines and, hence, had to shut shop,” he said.

Presently, only NMDC is producing iron ore and big steel mills like JSW Steel, Kalyani Steel and Sesa Goa, among others buy all the lumps.

There are 51 medium scale sponge iron units in Karnataka, with a combined production capacity of 12,600 tonnes per day (4.5 mt per annum). Karnataka-based sponge iron units contribute 20 per cent of the national production, at 22 mt per annum. The units also contribute about Rs 3,000 crore to Rs 5,000 crore a year to both state and national exchequer by way of several taxes.